The courier, express, and postal industry is the largest segment of the transportation marketplace worldwide. This blog will provide a personal perspective on the challenges faced by firms in the industry as they serve an increasingly competitive market.

Friday, August 1, 2008

The Postal Service now faces its greatest financial challenge since I first began writing about Postal Finances in 2001. The combination of secular and cyclical trends are having a devastating impact on postal volumes and revenue and cost-cutting efforts cannot happen fast enough to counter the decline in revenue.

The preliminary Quarter 3, FY2008 RPW estimates, posted on the PRC website on July 31, drive home the problem faced by the Postal Service. Revenue in the Quarter 3 is down 2.6% over last year and volume is down 5.5%. What makes the decline in volume particularly troubling is that it is greatest for those products that have higher margins than average. For example, higher-margin products experiencing large declines in volume include First Class Single Piece Cards (-14.4%), Express Mail (-14.4%), First Class Presort Cards (-10.5), Regular Enhanced Carrier Route Mail (-10.2) and First Class Single Piece Letters and Parcels (-9.8%). Both First Class mail and Standard mail used by commercial customers see a decline in volume of 6.8% in the quarter. The brighter spots are all in products that have lower margins and include Periodicals, Non-Profit mail and Parcel Post. But even these products are experiencing declines.

With one quarter to go, the Postal Service faces the prospect that its actual revenue could be only $75.2 billion or $3 billion short of plan. This estimate is derived by assuming that the volume and revenue trends of quarter 3 remain constant in quarter 4. Most likely, this assumption is optimistic; given additional slowdown in the automotive sector, bankruptcies of major retailers, restaurants and banks, and comments that UPS made in its most recent earnings release and conference call indicating that business activity comparisons weakened in each succeeding month of the reported quarter.

The Postal Service recognized that it was facing trouble and has repeatedly announced that it is looking to cut an additional $1 billion in expenses this year. Even with these additional cost reductions, the decline in revenue could result in a FY loss of $2.6 billion unless even greater cost reductions occur in the next 90 days.

If the Postal Service was a private sector firm, it could take action quickly to respond to this worsening financial situation. However, it is not and introducing new products, changing the processing network, restructuring transportation contracting, realigning carrier routes, closing unprofitable Post Offices must be completed through a time consuming process that forces it to bear losses that a private sector firm could avoid. None of these changes are delicate and all face opposition from well-entrenched stake holders who have an interest in delaying change. In addition, the Postal Service must be careful that the process it uses can withstand multiple levels of oversight from the Office of the Inspector General, General Accountability Office, Postal Regulatory Commission, and Congress, which has the effect of making management more cautious at a time when caution may not be an option.

Next fiscal year, the Postal Service’s financial plan will look significantly different from what was presented this year. Unless its economic forecasters project a significant economic rebound in 2009, the Postal Service may need to include well over $3 billion in cost savings just to break even, without even taking into account the impact of larger COLA’s due to higher inflation. The recent step to offer Voluntary Early Retirement in the next fiscal year will provide some of that savings. However any savings from additional retirements will not affect postal costs until the second quarter of FY2009. Also, as the first quarter includes both the end of the 2008 election and holiday mailing seasons, all other management actions will likely need to generate a full year of cost savings in the final three quarters of FY2009.

The challenge now for the Postal Service is to be open about its financial situation. Frank discussion of the new financial and business environment is critical to ensure that the Postal Service survives this rough economic patch and continues to provide the services that its customers demand. In making the challenges public, the Postal Service can help organizations that represent stakeholders explain to their members and constituents the new limits that difficult times may require. Increased public awareness of postal finances will also ensure that all future decisions on postal policy reflect the most current understanding of the economics and business environment of mail. The time to begin was yesterday.

25 comments:

Anonymous
said...

While the USPS must follow the CBA's of the crafts they have the latitude to address the masses of white collar employess that weigh like an albatross around the financial neck of the service. This did not happen overnight but all non-essential employees employment should be up for review. They chose to stop working the mail and now must own up to that decision.

The USPS has been top heavy for years. When will the OIG or any other oversight agency come to that conclusion? Heres an example; In Santa Barbara Ca, there were three supervisors for 24 carriers, a retail section and a box mail section for a total of 32 craft personnel. In 2007 three more supervisors were added for the same office. Its comical to watch the attempt of people that never touch the mail trying to make themselves look busy. If this is happening across the country, the USPS does'nt stand a chance of survival.

Yes, Potter and his 111 other top croonies got a 39% raise---really look into that as well as the 2 new hires-the Vp's they hired which were not even previous postal people. Not to mention all the $ they are spending on inferior equipment (machinery) and buying up this building and that building, building new ones to house this inferior equipment. USPS nevr spend their $ wisely and they have always put the cart in front of the horse. They fudge figures without looking at the bottom line!!!

at my office there are 4 mdo's and 2 srmdo's and a sr-srmdo (?)(on one tour)plant manager and a district manager when 8 years ago there was 1 srmdo and 2 mdo's per tour and 1 postmaster. There are supervisors per machine (3 employees)and supervisors (promoted)given made up jobs to keep them busy. The mail volumne is so low for once employees don't have a goal to shoot for and the supervisors are in more classes and meetings (to keep them busy)than at any other time. The USPS needs to look at the packages offered to GM AND FORD employees, they did it for a reason. They wanted to get rid of all the employees who would not otherwise go. The post office says they don't want to let the people who know how to work the mail go, well they don't care about us now that they have us (30 year clerk)so what difference does it make. They promote managers who don't know squat about the mail or the reason the way something is being done. They think they have a new and improved way and after a few people get letters of warning then the brand new supervisor realizes that the way it was had meaning. I say incentives are the answer, the loss of the money they give them will be a savings in the end.

after 24 years in the po ive seen the white collar side of the house increase. due to many factors such as folks who don't want to do the heavy manual work or are injured and thats the only way to continue to stay employed. i go to the p&dc a few times a year and see behind the scenes office job, people sitting behind desks ect. i can just imagine hq's! reduce, recycle and remove

Wow I wish we had your supervisor problems. At my station we have 83 routes and like 150 employees and 3 supervisors. if you have aquestion or a problem getting any kind of help from management is impossible. I hate to defend them but I can get things taken care of on my route and i'm tired of hearing "i'm busy right now remind me later"

The Postal Service is not "losing" $3 Billion this year. I hate when they say this shit. It's a $75.2 billion profit. The fact that their projections were off by about 3% doesn't make it a loss. It means their best guess was a little off. You don't have to look any further than DOIS to see how well they project numbers here. This is like a football handicapper predicting a team to win by 10 and they win bt 7.

If you really believe the Postal Service is losing all this money than you haven't been around corporate accountants. Look I can take my small home business and make it look like I took a loss. They are just writing things off and making other adjustments to that financial statement. If they are truly losing billions; which they aren't, the Postal Service would have to get help from the Feds and that's not happening. I know the PO I work for isn't losing money and I'm sure yours isn't either!

The general comment here that a private company would be able to manage this better is, I think, quite accurate. However, Congress in its wisdom has passed its new law (PAEA 2006) to enshrine further the bureaucratic approach to running USPS. That's too bad, as now the adjustments (to routes, work rules, flex labor, etc.) will all have to be made in the face of continuing constraints (on everyone involved). Together with climate change (equally hopeless response in the current Administration and Congress), I guess the answer is to pray for help from above. It seems unlikely that we will see any from below any time soon.

we have 1 204b who works 10 a day and 6 a week. She does nothing but walks around. Not counting the many "teams" who come in and out trying to save 3 minutes from the carriers. All dollars lost, but dont worry, we fumble around in the street with 3rd bundle, so they've done their job!

There is an obvious need for more supervisors generating data to send up to higher offices so that their supervisors have numbers to crunch and prove the need for more data to employ more number crunchers and more people to supervise those people...

...I'd just like to see our office get back into the mail delivery business instead of the mail curtailing business.

The Postal Service is a Joke, It is Quick to blame the union and its employees and contracts. The will never admit of their management personel over load or their own abuses of employees and wastefull actions ( ficticous reporting of street supervision milage, expensevive fuel providersand daily scaming on their part.) fallsifing time records among many other things that manageent is involved in.

Funny, as a mail carrier myself, my volume has done nothing but increase in the last few years...I wonder where these numbers are coming from. Parcels are out the roof now because of gas prices and ebay....

The USPS is in trouble now becauesit sold its own sole. They have to many incompetent people running the show. They gave away the package business back in the 1980's and have never rebounded, They could not even figure out how to run the businss so they gave it away. USPS will colapse because that is way they think. They absolutely blew it.

Whenever I hear that the USPS is in dire financial straights, I can't help but to ask, why is "Walk Sequenced" (WS) mail being torn open and put through Flat Sorting manchines? The mailers received discounts for this mail, now the USPS is having at least 3 crafts handle it prior to delivery. We have sent WS letter mail back to the plant for inclusion in DPS mail, just to have it returned in our flats, again wasting time and money. This is the USPS management way of wasting time and money!

Need a clue as to why they are losing money? Go to your local district office and look for anyone WORKING! They create more and more supervisor positions, promote them into district, and then order supervisors to challenge and argue over commitments and sit there with blank expressions and quote "dois says..." They are dollar foolish, and penny losers

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Blog Author

Alan Robinson is the President of the Direct Communications Group and an associate of Analytic Business Services (AnaBus). He has over twenty years experience helping firms and government officials deal with the regulatory, policy, marketing, and management issues associated with changes in competition within transportation, parcel delivery and postal markets.
He can be reached at alan.robinson@directcomgroup.com